Theresa May might have to wait until New Year for trade talks, says Ireland's Leo Varadkar

Mr Varadkar's office characterised a phone-call with Mrs May as a "stock-taking" exercise and said he made clear he was not backing down on his position that Dublin's approval for the opening of the second phase of talks was dependent on agreement on the Irish border.

With Mrs May under intense pressure from business for certainty by Christmas over the transition to a new UK/EU relationship, the Taoiseach told the Irish Dail: "We want to move to phase two but if it is not possible to move to phase two next week because of the problems that have arisen, well then we can pick it up of course in the New Year."

Downing Street said Mrs May told him she was "working hard to find a specific solution to the unique circumstances in Northern Ireland" and was committed to "moving together to achieve a positive result on this".

The PM also spoke by phone with Democratic Unionist Party leader Arlene Foster, whose rejection of plans for "regulatory alignment" between Northern Ireland and the Republic led to the collapse of a proposed deal on Monday.

But neither Downing Street nor Mrs Foster's office gave details of the call, with No 10 saying only they were “constructive,” and there was no announcement of further talks or meetings.

Meanwhile, opponents of a hard Brexit accused the Government of being "breathtakingly dysfunctional" after Philip Hammond revealed that - 18 months after the EU referendum - Cabinet had not yet discussed details of the UK's preferred "end state" relationship with the EU.

No 10 later said a discussion on the "end state" would be held in one of the two Cabinet meetings scheduled before the end of 2017.

But Sir Vince Cable, the Liberal Democrat leader, questioned the long delay in taking this step, asking: "Is this because ministers know they will not be able to agree? Ministers are behaving like a couple no longer on speaking terms but forced to live under the same roof."

The Chancellor also received a slapdown from Downing Street after suggesting that it was "inconceivable" the UK would not pay a financial settlement to the EU, regardless of whether it obtained a trade deal.

Mrs May's spokesman swiftly said the payment - estimated at up to £50 billion - was "dependent on us forging a deep and special future relationship with the EU".

In the Commons, the PM came under intense fire over her failure on Monday to seal a divorce agreement over lunch with Jean-Claude Juncker, the European Commission President.

Jeremy Corbyn, the Labour leader, labelled the Government's Brexit approach a "shambles" and claimed the DUP - on whose votes Mrs May relies for her Commons majority – was "ruling the roost".

But the PM attempted to downplay the deadlock over the Irish border, insisting that it was an issue which could only properly be resolved in the context of the upcoming trade talks.

She was heckled as she claimed "good progress" was being made in talks and faced shouts of "How?" from Labour MPs as she insisted she would not allow a hard border between Northern Ireland and the Republic.

"We will deliver this," declared Mrs May. "We aim to deliver this as part of our overall trade deal between the United Kingdom and the European Union. And we can only talk about that when we get into phase two."

Elsewhere, the Lords EU Committee in a report said it was "difficult, if not impossible, to envisage a worse outcome for the UK" than a no-deal scenario.

Meanwhile, the CBI warned jobs would be moved out of Britain unless the Government secured progress in the Brexit negotiations at next week's EU summit.

The leading business group said more than half, 60 per cent, of firms with Brexit contingency plans would activate them by Easter, meaning jobs would leave the UK, unless the EU27 agreed that the talks could move on to trade and transition.